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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the 52 weeks ended January 26, 2002 Commission file number 1-15274
J. C. PENNEY COMPANY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 26-0037077
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(State of incorporation) (I.R.S. Employer ID No.)
6501 LEGACY DRIVE, PLANO, TEXAS 75024-3698
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 431-1000
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Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock of 50(cent)par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
- ----------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___.
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant: $5,934,453,628 as of April 18, 2002.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 267,317,731
shares of Common Stock of 50(cent) par value, as of April 18, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Documents from which portions Parts of the Form 10-K
are incorporated by reference into which incorporated
----------------------------- -----------------------
1. J. C. Penney Company, Inc. Part I, Part II, and
2001 Annual Report to Stockholders Part IV
2. J. C. Penney Company, Inc. Part III
2002 Proxy Statement
3. J. C. Penney Funding Corporation Part I and Part IV
Form 10-K for fiscal year 2001
2
PART I
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1. Business.
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Effective January 27, 2002, J. C. Penney Company, Inc. changed its
corporate structure to a holding company format. As part of this structure,
J. C. Penney Company, Inc. changed its name to J. C. Penney Corporation, Inc.
("JCP"), and became a wholly-owned subsidiary of a newly formed affiliated
holding company ("Holding Company"). The new holding company assumed the name
J. C. Penney Company, Inc. ("Company"). The Holding Company has no direct
subsidiaries other than JCP. The Holding Company has no independent assets or
operations. All outstanding shares of common and preferred stock were
automatically converted into the identical number of and type of shares in the
new holding company. Stockholders' ownership interests in the business did not
change as a result of the new structure. Shares of the Company remain publicly
traded under the same symbol (JCP) on the New York Stock Exchange. The Company
is a co-obligor (or guarantor, as appropriate) regarding the payment of
principal and interest on JCP's outstanding debt securities. The guarantee by
the Holding Company of certain of JCP's outstanding debt securities is full and
unconditional. The Holding Company and its consolidated subsidiaries, including
JCP, are collectively referred to in this Annual Report on Form 10-K as
"Company" or "JCPenney", unless indicated otherwise.
JCPenney was founded by James Cash Penney in 1902; JCP was incorporated in
Delaware in 1924 and the Company was incorporated in Delaware in January 2002.
The Company has grown to be a major retailer, operating 1,075 JCPenney
department stores in all 50 states, Puerto Rico and Mexico. In addition, the
Company operates 54 Renner department stores in Brazil. The major portion of the
Company's business consists of providing merchandise and services to consumers
through department stores, catalog departments and the Internet. Department
stores, catalog and the Internet generally serve the same customers, have
virtually the same mix of merchandise and the majority of catalog sales are
completed in department stores. In addition, department stores accept returns
from sales initiated in department stores, catalog and via the Internet. The
Company markets predominantly family apparel, jewelry, shoes, accessories and
home furnishings. In addition, the Company, through its subsidiary, Eckerd
Corporation ("Eckerd"), operates a chain of 2,641 drugstores located throughout
the Southeast, Sunbelt, and Northeast regions of the United States.
In June 2001, JCP closed on the sale of its J. C. Penney Direct Marketing
Services, Inc. ("DMS") assets, including its J. C. Penney Life Insurance
subsidiaries and related businesses to a U.S. subsidiary of AEGON, N.V.
("AEGON"). JCP received cash at closing of approximately $1.3 billion ($1.1
billion after tax). Concurrent with the closing, JCP entered into a 15-year
strategic and marketing services arrangement with AEGON designed to offer an
expanded range of financial and membership services products to JCPenney
customers. Over the term of this arrangement, the Company will receive fee
income related to sales of certain financial products and membership services.
Such amounts will be recognized as earned in the Company's
3
financial statements. The Company's financial statements are presented to
reflect DMS as a discontinued operation.
The business of marketing merchandise and services is highly competitive.
The Company is one of the largest department store and drugstore retailers in
the United States and it has numerous competitors. Many factors enter into the
competition for the consumer's patronage, including price, quality, style,
service, product mix, convenience, and credit availability. The Company's annual
earnings depend to a significant extent on the results of operations for the
last quarter of its fiscal year. Sales for that period average approximately 30
percent of annual sales.
Information about certain aspects of the business of the Company included
under the captions of "Discontinued Operations" (page 21), "Restructuring and
Other Charges, Net", (pages 26 to 28), and "Segment Reporting" (pages 29 to 30),
which appears in the section of the Company's 2001 Annual Report to Stockholders
entitled "Notes to the Consolidated Financial Statements", "Five Year Financial
Summary" (page 31), and "Five Year Operations Summary" (page 32), which appear
in the Company's 2001 Annual Report to Stockholders on the pages indicated in
the parenthetical references, is incorporated herein by reference and filed
hereto as Exhibit 13 in response to Item 1 of Form 10-K.
In addition, information about J. C. Penney Funding Corporation, a wholly
owned consolidated subsidiary of JCP, which appears in Item 1 of its separate
Annual Report on Form 10-K for the fiscal year ended January 26, 2002, is
incorporated herein by reference and filed hereto as Exhibit 99(a) in response
to Item 1 of Form 10-K.
Suppliers. The Company purchases its merchandise from approximately 2,650
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domestic and foreign suppliers, many of which have done business with the
Company for many years. In addition, Eckerd purchases merchandise and
pharmaceuticals from approximately 3,250 suppliers, substantially all of which
are domestic. The majority of Eckerd's suppliers have done business with Eckerd
for many years. In addition to its Plano, Texas Home Office, the Company,
through its international purchasing subsidiary, maintained buying offices in
fifteen foreign countries and quality assurance inspection offices in an
additional nine foreign countries as of January 26, 2002.
4
Employment. The Company and its consolidated subsidiaries employed
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approximately 229,000 persons as of January 26, 2002.
Environment. Environmental protection requirements did not have a material
-----------
effect upon the Company's operations during fiscal 2001. While management
believes it unlikely, it is possible that compliance with such requirements will
lengthen lead time in expansion plans and increase construction, and therefore,
operating costs due in part to the expense and time required to conduct
environmental and ecological studies and related remediation.
Forward-Looking Statements. This Annual Report on Form 10-K may contain
--------------------------
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements, which reflect
the Company's current views of future events and financial performance, involve
known and unknown risks and uncertainties that may cause the Company's actual
results to be materially different from planned or expected results. Those risks
and uncertainties include, but are not limited to, competition, consumer demand,
seasonality, economic conditions and government activity. Investors should take
such risks into account when making investment decisions.
2. Properties.
----------
At January 26, 2002, the Company operated 3,770 retail stores, comprised of
1,075 JCPenney department stores, 54 Renner department stores and 2,641
drugstores, in all 50 states, Puerto Rico, Brazil, and Mexico, of which 221
JCPenney department stores, four Renner department stores and 46 drugstores were
owned. The Company also operated six catalog fulfillment centers, of which five
were owned. The Company operated sixty-eight store distribution centers and
outside stockrooms of which five distribution centers were owned. Eckerd
operated and owned nine drugstore distribution centers. The Company owned the
Company's Home Office facility, Eckerd corporate offices, and Renner's corporate
headquarters in Porto Allegre, Brazil. In addition, the Company owned as part of
its Home Office approximately 240 acres of property in Plano, Texas, adjacent to
the facility. Information relating to certain of the Company's facilities
included under the caption "Five Year Operations Summary", which appears on page
32 of the Company's 2001 Annual Report to Stockholders, is incorporated herein
by reference and filed hereto as Exhibit 13 in response to Item 2 of Form 10-K.
3. Legal Proceedings.
-----------------
On or about July 13, 2001, William E. York as Independent Executor of the
Estate of Marguerite York, and six other individuals, filed a First Amended
Class Action Petition against JCP, DMS, J. C. Penney Life Insurance Company
("JCPenney Life"), Quest Membership Services, Inc., J. C. Penney International
Insurance Group, Inc, J. C. Penney Telemarketing Inc., AEGON, N.V., AEGON USA,
Inc., AEGON Group, AEGON Special Markets Group, Inc., and Commonwealth General
Corporation in state court in Corpus Christi, Texas.* The Plaintiffs had
previously purchased accidental death and dismemberment insurance coverage from
JCPenney Life and allege, among other things, that some of them did not agree to
buy the coverage, that coverage was misrepresented, and that benefits were
wrongfully denied. The theories of legal liability urged by the plaintiffs are
violations of the Texas Deceptive Trade Practices - Consumer Protection Act, the
Texas Insurance Code, fraud, negligent misrepresentation, breach of contract,
unjust enrichment, and gross negligence. The pleadings do not distinguish
between the alleged conduct of one defendant and the alleged conduct of any
other defendant. The Court is allowing plaintiffs to conduct discovery to
determine whether they have a legitimate basis for including the defendants,
other than JCPenney Life, as parties.
The assets of DMS, including the stock of JCPenney Life, were sold to
Commonwealth General Corporation ("Commonwealth"), a domestic subsidiary of
AEGON, N. V., pursuant to a Stock Purchase Agreement (the "Agreement") dated as
of March 7, 2001, among Commonwealth as Purchaser, DMS as Seller, and JCP as
Parent corporation of DMS. Thus, as a matter of law, all of the liabilities of
JCPenney Life stayed with that company after the sale. Commonwealth is currently
providing defense to JCP and its subsidiaries DMS, J. C. Penney International
Insurance Group, Inc., and J. C. Penney Telemarketing, Inc. while reserving all
rights and claims it may have against these companies. All of the defendants are
jointly represented by outside counsel.
Under the Agreement, JCP and DMS agreed to indemnify Commonwealth for any
liability of JCPenney Life, but only to the extent that such liability arises
out of or relates to a breach of a representation and warranty in the Agreement.
Commonwealth may claim entitlement to indemnification from JCP and DMS if a
final determination in the York action is adverse to JCPenney Life, and
Commonwealth successfully contends that the liability arose out of a
representation or warranty in the Agreement. JCP's and DMS's liability for
breaches of representations and warranties is subject to both a deductible and a
cap. JCP's insurance policies may provide a basis for a claim for some coverage
of these entities in this matter, if needed.
Though not clearly articulated in their pleadings, it appears that the
named plaintiffs will seek certification of a national class. The defendants
will vigorously oppose a motion to certify a class. Discovery and analysis of
facts and law relevant to the issue of class certification will probably be the
focus of the lawsuit in the foreseeable future. Ruling on that motion will
likely be appealed by the losing party. Until that appeal process is completed,
there will be no trial on the merits.
The Company denies the allegations against it and its current and former
subsidiaries and is confident that the case will be vigorously defended.
Although it is too early to predict the outcome of this lawsuit, management is
of the opinion that it should not have a material adverse effect on the
Company's consolidated financial position or results of operations.
* An earlier Petition was never served on the Defendants. A Second Amended Class
Action Petition was filed on or about March 1, 2002.
4. Submission of Matters to a Vote of Security Holders.
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No matter was submitted to a vote of stockholders during the fourth quarter
of fiscal 2001.
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5
Executive Officers of the Registrant
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The following is a list, as of April 1, 2002, of the names and ages of the
executive officers of J. C. Penney Company, Inc. and of the offices and other
positions held by each such person with the Company. At the time of the
implementation of the holding company format, and as of April 1, 2002, these
officers held identical positions with JCP. References to such officers' current
positions are for J. C. Penney Company, Inc. and JCP; references to JCPenney
positions held during fiscal years 2001 and earlier (prior to the creation of
the holding company) are for JCP. There is no family relationship between any of
the named persons.
Offices and other positions
Name held with the Company Age
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Allen Questrom Chairman of the Board and
Chief Executive Officer; Director 61
Vanessa J. Castagna Executive Vice President, President and
Chief Operating Officer of JCPenney
Stores, Catalog and Internet 51
Robert B. Cavanaugh Executive Vice President and Chief
Financial Officer 50
Gary L. Davis Executive Vice President, Chief Human
Resources and Administration Officer 58
J. Wayne Harris Executive Vice President, Chairman
and Chief Executive Officer -
Eckerd Drug Stores 62
Charles R. Lotter Executive Vice President, Secretary
and General Counsel 64
Stephen F. Raish Executive Vice President
and Chief Information Officer 51
Mr. Questrom has served as Chairman of the Board and Chief Executive
Officer of the Company since September 13, 2000. He has served as a director of
J. C. Penney Corporation, Inc. since March 2002. Prior to joining the Company,
Mr. Questrom served as Chairman of the Board from 1999 to January 2001, and
Chief Executive Officer from 1999 to 2000, of Barney's New York, Inc., Chairman
of the Board and Chief Executive Officer of Federated Department Stores, Inc.
from 1990 to 1997, and President and Chief Executive Officer of Neiman Marcus
Stores from 1988 to 1990. He was the senior policy maker in these positions.
Prior to assuming these positions, Mr. Questrom held executive, senior
management, and senior merchandise manager positions at Federated Department
Stores.
Ms. Castagna has served as Executive Vice President, President and Chief
Operating Officer of JCPenney Stores, Catalog and Internet since May 2001.
Ms. Castagna served as Executive Vice President and Chief Operating Officer of
JCPenney Stores, Merchandising and Catalog from 1999 to May 2001. Prior to
joining the Company, Ms. Castagna served as Senior Vice President and General
Merchandise Manager for women's and children's accessories and apparel at
Wal-Mart Stores Division since 1996. Ms. Castagna's responsibilities at Wal-Mart
also included product, trend, and brand development for family apparel. She
joined Wal-Mart in 1994 as Senior Vice President and General
6
Merchandising Manager for home decor, furniture, crafts and children's apparel.
Prior to joining Wal-Mart, Ms. Castagna served in several senior level positions
in the retailing industry, including Senior Vice President, General
Merchandising Manager for women's and juniors for Marshalls stores, a division
of TJX Companies, and Vice President, Merchandising - Women's at Target Stores,
a division of Dayton Hudson Corporation (now known as Target Corporation).
Mr. Cavanaugh was elected Executive Vice President and Chief Financial
Officer of the Company effective January 2, 2001. He was elected Senior Vice
President and Chief Financial Officer of Eckerd Corporation, a subsidiary of the
Company, in 1999. From 1996 to 1999 he served as Vice President and Treasurer of
the Company. He has served as a director of Eckerd Corporation since 2001, and a
director of J. C. Penney Corporation, Inc. since March 2002.
Mr. Davis has served as Executive Vice President, Chief Human Resources and
Administration Officer, since 1998 and served as Senior Vice President, Director
of Human Resources and Administration from 1997 to 1998. From 1996 to 1997, he
served as Senior Vice President and Director of Personnel and Administration. He
was elected President of the Northwestern Region in 1992 and served in that
capacity until 1996.
Mr. Harris has served as Executive Vice President, Chairman and Chief
Executive Officer - Eckerd Drug Stores, since May 2001. Mr. Harris has served as
Chairman of the Board and Chief Executive Officer of Eckerd Corporation, a
subsidiary of the Company, since October 1, 2000. Prior to joining the Company,
Mr. Harris served as Chairman of the Board and Chief Executive Officer of The
Grand Union Company from 1997 to 2000, and he served as Chairman of the Board
and Chief Executive Officer of Canadian Co./GAP from 1995 to 1997, and held
various other executive and senior management positions with the Great Atlantic
& Pacific Company, and also The Kroger Co.
Mr. Lotter was elected an Executive Vice President of the Company in 1993.
He was elected Senior Vice President, General Counsel and Secretary in 1987. He
has served as a director of Eckerd Corporation since 1996 and a director of J.C.
Penney Corporation, Inc. since March 2002.
Mr. Raish was elected Executive Vice President and Chief Information
Officer of the Company effective January 2, 2001. In 1996 he was named Director
of Coordination, JCPenney Stores. He was elected Divisional Vice President in
1997. In 1998 he was elected President, Home and Leisure Division and in 1999 he
was named President of the Accelerating Change Together (ACT) initiative, the
Company's centralized merchandising process in department stores and catalog.
7
PART II
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5. Market for Registrant's Common Equity and Related Stockholder Matters.
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The Company's Common Stock is traded principally on the New York Stock
Exchange, as well as on other exchanges in the United States. In addition, the
Company has authorized 25 million shares of Preferred Stock, of which 604,278
shares of Series B ESOP Convertible Preferred Stock were issued and outstanding
at January 26, 2002. Additional information relating to the Common Stock and
Preferred Stock of the Company included under the captions "Consolidated
Statements of Stockholders' Equity" (page 17), "Capital Stock" (page 23), and
"Quarterly Data (unaudited)" (page 31), which appear in the Company's 2001
Annual Report to Stockholders on the pages indicated in the parenthetical
references, is incorporated herein by reference and filed hereto as Exhibit 13
in response to Item 5 of Form 10-K.
6. Selected Financial Data.
-----------------------
Information for the fiscal years 1997-2001 included in the "Five Year
Financial Summary" on page 31 of the Company's 2001 Annual Report to
Stockholders is incorporated herein by reference and filed hereto as Exhibit 13
in response to Item 6 of Form 10-K.
7. Management's Discussion and Analysis of Financial Condition and Results of
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Operations.
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The discussion and analysis included under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations", which
appears in the Company's 2001 Annual Report to Stockholders, beginning on page 3
thereof, is incorporated herein by reference and filed hereto as Exhibit 13 in
response to Item 7 of Form 10-K.
Forward-Looking Statements.
--------------------------
This Annual Report on Form 10-K, may contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements, which reflect the Company's current views of future
events and financial performance, involve known and unknown risks and
uncertainties that may cause the Company's actual results to be materially
different from planned or expected results. Those risks and uncertainties that
could affect the Company's results include, but are not limited to, competition,
consumer demand, seasonality, economic conditions and government activity.
Investors should take such risks into account when making investment decisions.
7A. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------
The Company maintains a majority of its cash and cash equivalents in short-term
financial instruments with original maturities of three months or less. Such
investments are subject to interest rate risk and may have a small decline in
value if interest rates increase.
8
Since the financial instruments are of short duration, a change of 100 basis
points in interest rates would not have a material effect on the Company's
financial condition.
The Company's outstanding long-term debt as of January 26, 2002 is at fixed
interest rates and would not be affected by interest rate changes. Future
borrowings under the Company's multi-year revolving credit facility, to the
extent that fluctuating rate loans were used, would be affected by interest rate
changes. As of January 26, 2002 no borrowings had been made under this facility.
The Company does not believe that a change of 100 basis points in interest rates
would have a material effect on the Company's financial condition.
See the discussion and analysis under "Fair Value of Financial Instruments"
and "Short-Term Debt" which appear in the Company's 2001 Annual Report to
Stockholders on page 23, and which are incorporated herein by reference and
filed hereto as Exhibit 13 in response to Item 7A of Form 10-K.
8. Financial Statements and Supplementary Data.
-------------------------------------------
The Consolidated Balance Sheets of J. C. Penney Company, Inc. and
subsidiaries as of January 26, 2002, and January 27, 2001, and the related
Consolidated Statements of Operations, Stockholders' Equity and Cash Flows for
each of the years in the three-year period ended January 26, 2002, appearing on
pages 15 through 18 of the Company's 2001 Annual Report to Stockholders,
together with the Independent Auditors' Report of KPMG LLP, independent
certified public accountants, appearing on page 14 of the Company's 2001 Annual
Report to Stockholders, the Notes to the Consolidated Financial Statements on
pages 19 through 30, and the quarterly financial highlights ("Quarterly Data
(unaudited)") appearing on page 31 thereof, are incorporated by reference and
filed hereto as Exhibit 13 in response to Item 8 of Form 10-K.
9. Changes in and Disagreements with Accountants on Accounting and Financial
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Disclosure.
----------
None.
PART III*
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10. Directors and Executive Officers of the Registrant.*
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11. Executive Compensation.*
----------------------
12. Security Ownership of Certain Beneficial Owners and Management.*
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9
13. Certain Relationships and Related Transactions.*
------------------------------------------------
* Pursuant to General Instruction G to Form 10-K, the information
called for by Items 10, with respect to directors of the Company (to the extent
not set forth in Part I hereof), 11, 12, and 13 is incorporated by reference to
the Company's 2002 Proxy Statement, which involves the election of directors,
the final copy of which the Company filed with the Securities and Exchange
Commission, pursuant to Regulation 14A, on April 9, 2002.
PART IV
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14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
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(a) 1. All Financial Statements. See Item 8 of this Annual Report on Form
10-K for financial statements incorporated by reference to the Company's 2001
Annual Report to Stockholders.
(a) 2. Financial Statement Schedules. Schedule II (Valuation and
Qualifying Accounts and Reserves) is attached on Page F-1. See Independent
Auditors' Report of KPMG LLP, independent certified public accountants,
appearing on page 14 of this Annual Report on Form 10-K.
All other schedules have been omitted as they are inapplicable or not
required under the rules, or the information has been submitted in the
consolidated financial statements and related financial information included in
the Company's 2001 Annual Report to Stockholders incorporated herein by
reference and filed hereto as Exhibit 13.
Separate financial statements are filed for J. C. Penney Funding
Corporation, a wholly owned consolidated subsidiary of JCP, in its separate
Annual Report on Form 10-K for the 52 weeks ended January 26, 2002, which
financial statements, together with the Independent Auditors' Report of KPMG LLP
thereon, are incorporated herein by reference and filed hereto as Exhibit 99(b).
(a) 3. Exhibits. See separate Exhibit Index on pages G-1 through G-10.
(b) Reports on Form 8-K during the fourth quarter of fiscal 2001. None.
(c) Each management contract or compensatory plan or arrangement
required to be filed as an exhibit to this form is filed as part of the separate
Exhibit Index on pages G-1 through G-9 and specifically identified as such
beginning on page G-4.
10
SIGNATURES
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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
J. C. PENNEY COMPANY, INC.
--------------------------
(Registrant)
/s/ R. B. Cavanaugh
By: _____________________________
R. B. Cavanaugh
Executive Vice President
and Chief Financial Officer
Dated: April 25, 2002
11
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
A. I. Questrom* Chairman of the Board and April 25, 2002
--------------
A. I. Questrom Chief Executive Officer
(principal executive officer);
Director
/s/ R. B. Cavanaugh Executive Vice President and April 25, 2002
-------------------
R. B. Cavanaugh Chief Financial Officer
(principal financial officer)
W. J. Alcorn* Senior Vice President and April 25, 2002
------------
W. J. Alcorn Controller (principal
accounting officer)
M. A. Burns* Director April 25, 2002
-----------
M. A. Burns
T. J. Engibous* Director April 25, 2002
--------------
T. J. Engibous
K. B. Foster* Director April 25, 2002
-------------
K. B. Foster
V. E. Jordan, Jr.* Director April 25, 2002
-----------------
V. E. Jordan, Jr.
Director
--------------
J. C. Pfeiffer
A. W. Richards* Director April 25, 2002
--------------
A. W. Richards
L. H. Roberts* Director April 25, 2002
-------------
L. H. Roberts
C. S. Sanford, Jr.* Director April 25, 2002
------------------
C. S. Sanford, Jr.
R. G. Turner* Director April 25, 2002
------------
R. G. Turner
*By:/s/ R. B. Cavanaugh
-------------------
R. B. Cavanaugh
Attorney-in-fact
12
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors of
J. C. Penney Company, Inc.:
Under date of February 21, 2002, we reported on the consolidated balance sheets
of J. C. Penney Company, Inc. and Subsidiaries as of January 26, 2002 and
January 27, 2001, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended January 26, 2002, as contained in the 2001 Annual Report to
Stockholders. These consolidated financial statements and our report thereon are
incorporated by reference in the Company's Annual Report on Form 10-K for the
2001 fiscal year. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule listed in Item 14(a)(2) of the Annual Report on
Form 10-K. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Dallas, Texas
February 21, 2002
13
J. C. PENNEY COMPANY, INC. SCHEDULE II
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in millions)
- --------------------------------------------------------------------------------
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 26, January 27, January 29,
Description 2002 2001 2000
- --------------------------------------------------------------------------------
Reserves deducted from assets
- -----------------------------
Allowance for doubtful accounts/(1)/
Balance at beginning of period $ 30 $ 20 $ 124
Additions charged to costs and
expenses 29 33 129
Deductions of write-offs, less
recoveries (32) (23) (157)
Reduction in reserves related
to the sale of the bank
receivables portfolio - - (76)
----------- ----------- ----------
Balance at end of period $ 27 $ 30 $ 20
=========== =========== ==========
/(1)/ Excludes amounts related to the Company's retained interest in JCP Master
Credit Card Trust.
Other reserves
State tax valuation allowance $ 85 $ 60 $ -
EXHIBIT INDEX
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Exhibit
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2. (i) Plan of acquisition, reorganization, arrangement, liquidation
-------------------------------------------------------------
or succession Agreement and Plan of Merger dated as of January 23,
-------------
2002, between JCP and Company (incorporated by reference to
Exhibit 2 to Company's Form 8-K dated January 27, 2002,
SEC File No. 001-15274).
3. (i) Articles of Incorporation Restated Certificate of Incorporation of
-------------------------
the Company (incorporated by reference to Exhibit 3(i) to
Company's Form 8-K dated January 27, 2002, SEC File No.
001-15274).
(ii) Bylaws Bylaws of Company, as amended to January 27, 2002
------
(incorporated by reference to Exhibit 3(ii) to Company's Form 8-K
dated January 27, 2002, SEC File No. 001-15274).
4. Instruments defining the rights of security holders, including indentures
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(a) Indenture, dated as of October 1, 1982, between JCP and U.S.
Bank National Association, Trustee (formerly First Trust of
California, National Association, as Successor Trustee to Bank
of America National Trust and Savings Association)
(incorporated by reference to Exhibit 4(a) to Company's Annual
Report on Form 10-K for the 52 week period ended January 29,
1994*).
(b) First Supplemental Indenture, dated as of March 15,
1983, between JCP and U.S. Bank National Association, Trustee
(formerly First Trust of California, National Association, as
Successor Trustee to Bank of America National Trust and Savings
Association)(incorporated by reference to Exhibit 4(b) to
Company's Annual Report on Form 10-K for the 52 week period ended
January 29, 1994*).
(c) Second Supplemental Indenture, dated as of May 1, 1984, between
JCP and U.S. Bank National Association, Trustee (formerly First
Trust of California, National Association, as Successor Trustee to
Bank of America National Trust and Savings Association)
(incorporated by reference to Exhibit 4(c) to Company's Annual
Report on Form 10-K for the 52 week period ended January 29,
1994*).
(d) Third Supplemental Indenture, dated as of March 7, 1986, between
JCP and U.S. Bank National Association, Trustee (formerly First
Trust of California, National Association, as Successor Trustee to
Bank of America National Trust and Savings Association)
(incorporated by reference to Exhibit 4(d) to Company's
Registration Statement on Form S-3, SEC File No. 33-3882).
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(e) Fourth Supplemental Indenture, dated as of June 7, 1991, between JCP
and U.S. Bank National Association, Trustee (formerly First Trust of
California, National Association, as Successor Trustee to Bank of
America National Trust and Savings Association) (incorporated by
reference to Exhibit 4(e) to Registrant's Registration Statement on
Form S-3, SEC File No. 33-41186).
(f) Indenture, dated as of April 1, 1994, between JCP and U.S. Bank
National Association, Trustee (formerly First Trust of California,
National Association, as Successor Trustee to Bank of America National
Trust and Savings Association) (incorporated by reference to Exhibit
4(a) to Company's Registration Statement on Form S-3, SEC File No.
33-53275).
(g) Amended and Restated 364-Day Revolving Credit Agreement dated as of
December 3, 1996, among JCP, J. C. Penney Funding Corporation, the
Lenders party thereto, Morgan Guaranty Trust Company of New York, as
Agent for the Lenders, and Bank of America Illinois, Bankers Trust
Company, The Chase Manhattan Bank, Citibank, N.A., Credit Suisse First
Boston, and NationsBank of Texas, N.A., as Co-Agents for the Lenders
(incorporated by reference to Exhibit 4(d) to J. C. Penney Funding
Corporation's Annual Report on Form 10-K for the 52 weeks ended
January 25, 1997, SEC File No. 1-4947-1).
(h) Amended and Restated Five-Year Revolving Credit Agreement dated as of
December 3, 1996, among JCP, J. C. Penney Funding Corporation, the
Lenders party thereto, Morgan Guaranty Trust Company of New York, as
Agent for the Lenders, and Bank of America Illinois, Bankers Trust
Company, The Chase Manhattan Bank, Citibank, N.A., Credit Suisse First
Boston, and NationsBank of Texas, N.A., as Co-Agents for the Lenders
(incorporated by reference to Exhibit 4(e) to J. C. Penney Funding
Corporation's Annual Report on Form 10-K for the 52 weeks ended
January 25, 1997, SEC File No. 1-4947-1).
(i) Amendment and Restatement Agreement to 364-Day Revolving Credit
Agreement, dated as of October 1, 1999, among JCP, J. C. Penney
Funding Corporation, the Lenders party thereto, The Chase Manhattan
Bank, as Administrative Agent, Salomon Smith Barney Inc., as
Syndication Agent, and Bank of America, N.A. and Credit Suisse First
Boston, as Co-Documentation Agents (incorporated by reference to
Exhibit 4(a) to J. C. Penney Funding Corporation's Quarterly Report on
Form 10-Q for the 39 weeks ended October 30, 1999, SEC File No.
1-4947-1).
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(j) Amendment and Restatement Agreement to Five-Year Revolving Credit
Agreement, dated as of November 21, 1997, among JCP, J. C. Penney
Funding Corporation, the Lenders party thereto, Morgan Guaranty Trust
Company of New York, as Agent, and Bank of America National Trust and
Savings Association, Bankers Trust Company, The Chase Manhattan Bank,
Citibank, N.A., Credit Suisse First Boston and NationsBank of Texas,
N.A., as Managing Agents (incorporated by reference to Exhibit 4(g) to
J. C. Penney Funding Corporation's Annual Report on Form 10-K for the
53 weeks ended January 31, 1998, SEC File No. 1-4947-1).
(k) Guaranty dated as of February 17, 1997, executed by JCP, (incorporated
by reference to Exhibit 4(c) to J. C. Penney Funding Corporation's
Annual Report on Form 10-K for the 52 weeks ended January 25, 1997,
SEC File No. 1-4947-1).
(l) Guaranty dated as of December 3, 1996, executed by JCP, with respect
to the Amended and Restated 364-Day and Five-Year Revolving Credit
Agreements, each dated as of December 3, 1996 (incorporated by
reference to Exhibit 4(m) to J. C. Penney Funding Corporation's Annual
Report on Form 10-K for the 52 weeks ended January 25, 1997, SEC File
No. 1-4947-1).
(m) Indenture, dated as of October 15, 2001, between JCP and The Bank of
New York, Trustee (incorporated by reference to Exhibit 4(a) to
Company's Registration Statement on Form S-3 filed November 29, 2001,
SEC File No. 333-74122).
(n) Rights Agreement, dated as of January 23, 2002, by and between Company
and Mellon Investor Services LLC as Rights Agent (incorporated by
reference to Exhibit 4 to Company's Form 8-K dated January 27, 2002,
SEC File No. 001-15274).
(o) Fifth Supplemental Indenture, dated as of January 27, 2002, among the
Company, JCP and U.S. Bank National Association, Trustee (formerly
First Trust of California, National Association, as Successor Trustee
to Bank of America National Trust and Savings Association) to
Indenture dated as of October 1, 1982.
(p) First Supplemental Indenture dated as of January 27, 2002, among the
Company, JCP and U.S. Bank National Association, Trustee (formerly
Bank of America National Trust and Savings Association) to Indenture
dated as of April 1, 1994.
(q) First Supplemental Indenture dated as of January 27, 2002, among the
Company, JCP and The Bank of New York, Trustee to Indenture dated as
of October 15, 2001 (incorporated by reference to Exhibit 4(a)(ii) to
Company's Registration Statement on Form S-3, SEC File No. 333-74122).
(r) First Supplemental Indenture dated as of January 27, 2002, among the
Company, JCP and JPMorgan Chase Bank, Trustee (formerly First Trust of
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California, National Association, as Successor Trustee to Bank of
America National Trust and Savings Association) to Indenture dated as
of May 1, 1981.
(s) Registration Rights Agreement for Convertible Subordinated Notes dated
October 15, 2001 between JCP and Initial Purchasers.
Other instruments evidencing long-term debt have not been filed as exhibits
hereto because none of the debt authorized under any such instrument exceeds 10
percent of the total assets of the Registrant and its consolidated subsidiaries.
The Registrant agrees to furnish a copy of any of its long-term debt instruments
to the Securities and Exchange Commission upon request.
10. Material contracts
------------------
(i) Other than Compensatory Plans or Arrangements
---------------------------------------------
(a) Loan Agreement dated as of January 28, 1986 between JCP and J. C.
Penney Funding Corporation (incorporated by reference to Exhibit 4 to
Company's Current Report on Form 8-K, Date of Report - January 28,
1986*).
(b) Amendment No. 1 to Loan Agreement dated as of January 28, 1986 between
JCP and J. C. Penney Funding Corporation (incorporated by reference to
Exhibit 1 to Company's Current Report on Form 8-K, Date of Report -
December 31, 1986*).
(c) Amendment No. 2 to Loan Agreement dated as of January 28, 1986 between
JCP and J. C. Penney Funding Corporation (incorporated by reference to
Exhibit 10(i)(e) to Company's Annual Report on Form 10-K for the 52
weeks ended January 25, 1997*).
(d) Agreement dated as of September 30, 2000, between JCP and J.E.
Oesterreicher (incorporated by reference to Exhibit 10(c) to Company's
Quarterly Report on Form 10-Q for the 13 and 39 week periods ended
October 28, 2000*).
(ii) Compensatory Plans or Arrangements required to be filed as Exhibits to
----------------------------------------------------------------------
this Report pursuant to Item 14 (c) of this Report
--------------------------------------------------
(a) J. C. Penney Company, Inc. Directors' Equity Program Tandem Restricted
Stock Award/Stock Option Plan (incorporated by reference to Exhibit
10(k) to Company's Annual Report on Form 10-K for the 52 week period
ended January 28, 1989*).
(b) J. C. Penney Company, Inc. 1989 Equity Compensation Plan (incorporated
by reference to Exhibit A to Company's definitive Proxy Statement for
its Annual Meeting of Stockholders held on May 19, 1989*).
(c) February 1995 Amendment to J. C. Penney Company, Inc. 1989 Equity
Compensation Plan (incorporated by reference to Exhibit 10(ii)(k) to
Company's Annual Report on Form 10-K for the 52 week period ended
January 28, 1995*).
(d) February 1996 Amendment to J. C. Penney Company, Inc. 1989 Equity
Compensation Plan, as amended (incorporated by reference to Exhibit
10(ii)(k) to Company's Annual Report on Form 10-K for the 52 week
period ended January 27, 1996*).
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(e) J. C. Penney Company, Inc. 1993 Equity Compensation Plan (incorporated
by reference to Exhibit A to Company's definitive Proxy Statement for
its Annual Meeting of Stockholders held on May 21, 1993*).
(f) February 1995 Amendment to J. C. Penney Company, Inc. 1993 Equity
Compensation Plan (incorporated by reference to Exhibit 10(ii)(l) to
Company's Annual Report on Form 10-K for the 52 week period ended
January 28, 1995*).
(g) November 1995 Amendment to J. C. Penney Company, Inc. 1993 Equity
Compensation Plan, as amended (incorporated by reference to Exhibit
10(ii)(n) to Company's Annual Report on Form 10-K for the 52 week
period ended January 27, 1996*).
(h) J. C. Penney Company, Inc. 1993 Non-Associate Directors' Equity Plan
(incorporated by reference to Exhibit B to Company's definitive Proxy
Statement for its Annual Meeting of Stockholders held on May 21,
1993*).
(i) February 1995 Amendment to J. C. Penney Company, Inc. 1993
Non-Associate Directors' Equity Plan (incorporated by reference to
Exhibit 10(ii)(m) to Company's Annual Report on Form 10-K for the 52
week period ended January 28, 1995*).
(j) J. C. Penney Company, Inc. Deferred Compensation Plan as amended
through July 14, 1993 (incorporated by reference to Exhibit 10(a) to
Company's Quarterly Report on Form 10-Q for the 13 and 26 week periods
ended July 31, 1993*).
(k) J. C. Penney Company, Inc. Deferred Compensation Plan for Directors,
as amended effective April 9, 1997 (incorporated by reference to
Exhibit 10(a) to Company's Quarterly Report on Form 10-Q for the 13
week period ended April 26, 1997*).
(l) Directors' Charitable Award Program (incorporated by reference to
Exhibit 10(r) to Company's Annual Report on Form 10-K for the 52 week
period ended January 27, 1990*).
(m) Form of Indemnification Trust Agreement between Company and The Chase
Manhattan Bank (formerly Chemical Bank) dated as of July 30, 1986, as
amended (incorporated by reference to Exhibit 1 to Exhibit B to
Company's definitive Proxy Statement for its Annual Meeting of
Stockholders held on May 29, 1987*).
G-5
(n) J. C. Penney Company, Inc. 1997 Equity Compensation Plan (incorporated
by reference to Exhibit A to Company's definitive proxy statement for
its Annual Meeting of Stockholders held on May 16, 1997*).
(o) J. C. Penney Company, Inc. 1999 Separation Allowance Program for
Profit-Sharing Management Associates, effective July 14, 1999, as
amended September 8, 1999 (incorporated by reference to Exhibit 10(a)
to Company's Quarterly Report on Form 10-Q for the 13 and 26 weeks
ended July 31, 1999*).
(p) Employment Agreement dated as of August 1, 1999 between the Company
and V. J. Castagna (incorporated by reference to Exhibit 10(b) to
Company's Quarterly Report on Form 10-Q for 13 and 39 weeks ended
October 30, 1999*).
(q) Employment Agreement dated as of July 21, 2000 between the Company and
A. I. Questrom (incorporated by reference to Exhibit 10 to Company's
Current Report on Form 8-K dated July 21, 2000*).
(r) J. C. Penney Company, Inc. 2000 New Associate Equity Plan
(incorporated by reference to Exhibit 10(a) to Company's Quarterly
Report on Form 10-Q for the 13 period ended April 28, 2000*).
(s) Employment Agreement dated as of September 25, 2000 between the
Company and J. W. Harris (incorporated by reference to Exhibit 10(b)
to Company's Quarterly Report on Form 10-Q for the 13 and 39 week
periods ended April 28, 2001*).
(t) Amendment No. 1, dated as of May 19, 2000 to the Employment Agreement
dated as of August 1, 1999, between the Company and V.J. Castagna
(incorporated by reference to Exhibit 10(ii)(av) to Company's Annual
Report on Form 10-K for the 52 week period ended January 27, 2001*).
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(u) Incentive Compensation Agreements dated as of January 2, 2001, between
the Company and G. L. Davis, C. R. Lotter, and M. W. Taxter
(incorporated by reference to Exhibit 10(ii) to Company's Annual
Report on Form 10-K for the 52 week period ended January 27, 2001*).
(v) J. C. Penney Company, Inc. 2001 Equity Compensation Plan (incorporated
by reference to Exhibit B to Company's definitive proxy statement for
its Annual Meeting of Stockholders held on May 18, 2001*).
(w) J. C. Penney Company, Inc. 1999 Separation Allowance Program for
Profit-Sharing Management Associates, as amended through January 25,
2002.
(x) J. C. Penney Company, Inc. Supplemental Term Life Insurance Plan for
Management Profit-Sharing Associates, as amended through January 1,
2002.
(y) J. C. Penney Corporation, Inc. 1995 Benefit Restoration Plan, as
amended through January 27, 2002.
(z) Supplemental Retirement Program for Management Profit-Sharing
Associates of J. C. Penney Corporation, Inc., as amended through
January 27, 2002.
(aa) J. C. Penney Corporation, Inc. Mirror Savings Plans I, II and III, as
amended through January 27, 2002.
(ab) Form of Indemnification Agreement between Company, J. C. Penney
Corporation, Inc. and individual Indemnitees, as amended through
January 27, 2002.
(ac) J. C. Penney Corporation, Inc. 1989 Management Incentive Compensation
Program, as amended through February 20, 2002.
(ad) Eckerd Corporation Key Management Bonus Program, dated as of
February 1, 1999.
* SEC file number 1-777
11. Statement re: Computation of per share earnings
-----------------------------------------------
See calculation of earnings per share on page 15 in the Consolidated
Statement of Operations in the Company's 2001 Annual Report to Stockholders.
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12. Statement re: Computation of ratios
-----------------------------------
(a) Computation of Ratios of Available Income to Combined Fixed Charges
and Preferred Stock Dividend Requirement.
(b) Computation of Ratios of Available Income to Fixed Charges.
13. Annual report to security holders
---------------------------------
Excerpt from Company's 2001 Annual Report to Stockholders.
21. Subsidiaries of the registrant
------------------------------
List of certain subsidiaries of J. C. Penney Company, Inc. as of April 1,
2002.
23. Independent Auditors' Consent
-----------------------------
24. Power of Attorney
-----------------
99. Additional Exhibits
-------------------
(a) Item 1 of J. C. Penney Funding Corporation Annual Report on Form 10-K
for the 52 weeks ended January 26, 2002 (incorporated by reference to
J. C. Penney Funding Corporation Annual Report on Form 10-K for the 52
weeks ended January 26, 2002, filed concurrently herewith, SEC File
No. 1-4947-1).
(b) Excerpt from J. C. Penney Funding Corporation Annual Report.
G-8